Interview: Mounib Hammoud
To what extent are factors such as declining oil prices, subsidy cuts and regional challenges adversely impacting the construction industry?
MOUNIB HAMMOUD: The construction sector in Saudi Arabia has been adversely affected by domestic and exogenous factors such as lower global oil prices, regional unrest, subsidy reductions and budget declines. That being said, the current macroeconomic environment and state of the construction industry should not be of great concern as the sector goes through such challenges cyclically. I expect the industry will experience some consolidation and move forward, spurred on by an increase in private sector participation.
The Kingdom has very strong fundamentals to ensure the construction and real estate sectors will re-align onto the path of growth. These include organic demand and appealing demographics consisting of a growing young population, with statistics sharing that about 70% of the population is less than 30 years old. In this context, if you then consider that there is a housing shortage totalling 1.5m homes, it becomes evident that the ingredients are in place to drive development in construction and real estate.
What role does government spending currently play in shaping the construction sector?
HAMMOUD: Government spending has historically driven the construction and real estate industry in Saudi Arabia, whether for direct public infrastructure projects or private real estate developments. Over the past year contractors have been under pressure, especially those undertaking public projects that may have experienced delayed payment issues, which affect their cash flows and ability to operate on schedule. Most, if not all, projects that were started beforehand are on course for completion, albeit at a slower pace, while other developments in the pipeline may be postponed. This provides an opportunity for the private sector to step in and play a role. Perhaps public-private partnerships will become more prevalent, creating jobs and providing work for small and medium-sized enterprises as subcontractors. Additionally, opening up the market to domestic and foreign investment will bring more liquidity for investors. The time is right for real estate and construction development. Raw and building materials, such as steel and cement, are available at appealing prices. New regulations such as the tax on empty land will further accelerate the development of housing in urban areas, especially in light of increasing urbanisation in major cities such as Riyadh and Jeddah. We could see regulations on down payment thresholds relaxed, which might improve the financing situation.
Going forward, I am quite confident on the construction sector. Despite the macroeconomic environment, the fundamentals are all in place and the long-term strategic plan will continue to foster confidence in the market. Given the construction sector’s multiplier affects on the rest of the economy, it will be a welcome development overall. The sector contributes about $3bn in revenues and creates employment for tens of thousands of people.
How can contractors ensure that supporting infrastructure is in place for new developments?
HAMMOUD: Supporting infrastructure is vital to any new development, whether for housing or infrastructure. That is why we are seeing significant movement in areas where it is already in place, such as in northern Jeddah. It is not the time to burden the municipalities to develop new infrastructure in outlying areas when utilities and transport nodes are already in place in certain high-density clusters. In Jeddah Economic City & Jeddah Tower; a project in line with the Saudi Vision 2030, such infrastructure is key, with the potential development of a metro node and bridge acting as an economic enabler for the city which is set to become the new downtown of uptown Jeddah.
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